What is a Self Cert Offset Mortgage?

A self cert offset mortgage, also known as a self certified offset mortgage, combines the benefit of declaring your own income with the freedom of an offset mortgage that allows overpayments, lump sum payments, underpayments, and payment holidays.

Suitability

A self cert offset mortgage is designed for people who find it difficult to prove their income, such as: self-employed people; seasonal workers; freelancers and contractors; commission only workers; and temporary or agency staff. The term self cert means exactly what it says – you certify your income is enough to repay the mortgage you are applying for without having to prove your income or your financial and employment status. However, self cert lenders will perform a standard credit check and you need to prove your identity to comply with anti-money laundering laws.

Differences

There area few differences between a self cert offset mortgage and a mainstream mortgage: interest rates are slightly higher by 0.5% to 1.5%; many specialist self cert lenders will only deal with approved independent mortgage brokers and not directly with you; you need to be at least 21 years of age, whereas mainstream mortgages are available to people over 18 years of age.

Income Multiples

The income multiples for a self cert offset mortgage are usually the same as for a mainstream mortgage, approximately 2.5 – 4.5 times your annual individual income, or for a couple it is approximately 2.5 – 4 times their combined annual income. It is not worth exaggerating your income so you can get a bigger mortgage because it is a criminal offence to lie on a mortgage application, and it could be difficult to make the mortgage repayments which could put you at risk of losing your home.

Loan to Value

The amount you can borrow (the loan to value or LTV) may well depend on your individual circumstances, for example: if you have been self-employed for several years and you can show a regular income, you are likely to get a higher LTV than if you’ve been self-employed for only a year or two. You will also need a bigger deposit for a self cert offset mortgage as most lenders tend to advance 85% of the property’s value, although there a few lenders that will advance 90% of the property’s value.

Advisers tend to recommend people who are opting for a self cert offset mortgage to have a short-term mortgage deal of two or three years. Once the fixed or discounted term has come to an end you may meet standard lending criteria and be able to switch to a mainstream mortgage with a lower rate.

Mortgage Broker

A self cert offset mortgage can be complex, so it is worthwhile going to an independent mortgage broker for advice as they will assess your application and inform you what a lender requires, as each self cert lender’s criteria is different. For example: some lenders will want to contact your employer (if employed) or your accountant to verify the information regarding how long you have been in business, but not how much you earn. Some lenders will not want any verification. They will also know the best self cert deals in the market and have access to products that aren’t available on the high street.

Conclusion

A self cert offset mortgage is ideal for people who have an unpredictable income and want to own their own home but can not obtain a traditional mortgage. A self cert offset mortgage allows greater flexible than a standard self cert mortgage, as it allows you to make over and underpayments, lump sum payments and even payment holidays.